Market growth reliant on quality used influx.

Used market requires good quality stock injection to continue upwards trajectory in line with rising demand

The fourth quarter of 2019 saw the used car market benefit from improving consumer confidence, increased certainty and relatively stable pricing despite an ongoing supply and demand imbalance in the wholesale side of the business. That’s the view of Cox Automotive, which has welcomed the boost in transactions after a year of fluctuation and reactive decision-making.

Retail trends have also been reflected in the wholesale markets, with an average +3.3% increase on Q4 first time conversion rates in 2019, compared with the previous year – an uplift to 86.8%.

Stock availability remains a concern. While a third of dealers reported an increase in stock availability in 2019 in the Cox Automotive Insight Survey, another third stated the opposite. The January 2020 edition of the survey saw 94% of dealers predict stock availability would remain challenging or worsen throughout the coming year.

Cox Automotive has also cautioned a split may be emerging, between those dealers holding out for profit due to supply constraints, and others focused on turning stock at lower margin to retain volumes. With used cars supporting the lost revenue from a stalling new car sector, the global automotive business argues further strategy shifts are yet to come.

Philip Nothard, Customer Insight & Strategy Director at Cox Automotive, comments: “While the relative shortage of good quality used fleet stock at the tail end of the year may have helped to support a price boost, the demand for young, low mileage vehicles shows little sign of abating in either the retail or wholesale markets. This is causing dealers to make conscious decisions about strategy – sell more or sell higher; while the auction halls are increasingly competitive with buyers looking to snap up the best stock.

“Indeed, while the much-needed uplift in consumer confidence is pushing buyers to market, many are still looking at used rather than new for reasons as diverse as uncertainty over environmental policy and new vehicle technologies. The delayed renewals in the company car sector mean we are looking at constraints on good quality used stock in the first quarter of 2020, prompting dealers to commit one way or the other – margin or volume. With stock shortages and rising demand, dealers are sometimes spending more than they would like to keep forecourts fully stocked.”

Latest data from the Society of Motor Manufacturers and Traders (SMMT) has confirmed 7.9m used vehicles were transacted in 2019, down just -0.1% YoY. It marked the fourth highest used car since 2001, and the second highest fourth quarter on record in the same period. Total new and used transactions exceeded 10m for the fifth consecutive year, in line with Cox Automotive forecasts.

Nothard continues: “The figures prove the market has turned to used cars. We are forecasting 2.65m transactions in Q1 2020, of which 1.96m will be used. While this is a predicted fall of -2.8% YoY, but in line with a move to more sustainable levels following the peak in new and used transactions in 2016. We are optimistic about the continued strength of the used car market reflecting the bounce back in both business and consumer confidence. However, continued growth in used cars will require an injection of good quality used stock into the wholesale markets.”

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